National Commercial Bank Jamaica Limited (NCBJ) lost the final legal battle against its staff association on Tuesday as the Privy Council ruled that it must pay a profit-sharing entitlement which spans two decades.

The judicial committee of the Privy Council ruled against the arguments put forward by NCBJ, which has lost in all three court appearances against the NCB Staff Association. The premise of the case stems from December 2002 when NCBJ stated that there was a shortfall to trigger a profit-sharing scheme from its 2002 audited financial statements. However, the NCB Staff Association clawed back at the board’s position as the language of the 1980 scheme stated the words “consolidated profits before tax” and made no provision for differing accounting changes.

“The board [Lords of Privy Council] will humbly advise His Majesty that the appeal be dismissed and that, in the interests of simplicity, the proposed declarations referred to in paragraph 52 above, once approved by the board, be made in place of those made by Sykes J in his judgment dated 20 July 2017,” stated the ruling which reaffirmed the original July 2017 ruling by Supreme Court Justice Bryan Sykes.

When a company (Company A) owns more than 50 per cent of another company (Company B) or demonstrates control, Company A will recognise Company B as a subsidiary and incorporate its financial performance into its financial statements. These financial statements are typically referred to as consolidated financials as they bring together all the earnings of the core company (Company A) and its subsidiaries.

However, when the parent company/core company (Company A) does not own 100 per cent of its subsidiary, it will typically separate its net profit under a segment covering what is attributable to its shareholders and another termed non-controlling interest (NCI), which covers the other owners of the subsidiary (Company B).

The main area of contention was the interpretation of consolidated profits before tax and how it was to be treated by not only the auditors PricewaterhouseCoopers (PWC), but by board surrounding the minority interest/NCI. NCBJ had acquired the remaining 49.5 per cent stake in Edward Gayle and Company Limited (now NCB Capital Markets Limited) in August 2002. Thus, for most of the 2002 financial year, NCBJ reported a minority interest for the stake it didn’t own in Edward Gayle.

Under the 1980 circular, paragraph two, NCBJ staff were entitled to a profit sharing that was up to a maximum of six per cent of consolidated profits before tax, provided that such profit was in excess of 25 per cent of shareholder funds as shown in the audited accounts of the immediately preceding financial year, as agreed by the auditors. NCBJ’s position was that it was necessary to deduct the minority interest of the subsidiaries it didn’t have 100 per cent interest in, to arrive at the contractual term of art, “consolidated profits before tax”.

However, the NCB Staff Association countered, saying that the deduction of minority interests in its subsidiaries was not part of the calculation of consolidated profit before tax in the contractual agreement. This eventually led to the collective group filing a claim in the Supreme Court in February 2006 over the profit-sharing scheme which it believes was triggered in 2002. Justice Bryan Sykes ruled in the NCB Staff Association’s favour and ruled in October 2017 on the calculation of interest due on the outstanding sums.

As a result, $142,821,646.39 was due from October 1, 2002, until the date of payment at a commercial interest rate of 20.05 per cent which would be calculated under simple interest per annum or yearly. NCBJ appealed the ruling to the Jamaican Court of Appeal which ruled against their appeal in July 2020 and affirmed all of Sykes’s prior judgements.

The Privy Council ruled against NCBJ’s appeal on the interpretation of the scheme and award of interest and referenced that the proposed declarations referenced in the ruling be made in place of Sykes’s original judgement. Justice Sykes originally granted six declarations in the staff association’s favour, with the Privy Council stating a more succinct explanation to combine the substance of declarations one and five and leaving declarations eight and nine unchanged.

NCBJ had $772.38 million as provisions made under contingent liabilities for its 2023 audited financials as of September 30. This included the NCB Staff Association award which did not have an explicitly stated figure. However, in the 2020 Court of Appeal ruling, it was stated that $435.96 million was calculated as interest up to January 16, 2018. Both the principal and interest were to be placed in separate accounts. However, a simple interest calculator for 21 years up to October 2023 reveals $601.35 million in interest and a total payout of $744.17 million.

This payment is available to all NCBJ staff in good standing between October 2001 to September 2002, with the staff count then being over 2,000 persons. Thus, even if an employee was made redundant, retired or left the bank in good accords, they would be entitled to the payment. If any employee has died or no longer employed to NCBJ, the NCB Staff Association will hold the funds in trust for the estate or beneficiaries. Paul Stewart is the president of the NCB Staff Association.

The Privy Council board was composed of Lord Hodge, Lord Stephens and Lady Rose. Sandra Minott-Phillips KC and Noel Levy of Myers, Fletcher & Gordon represented NCBJ while M Georgia Gibson Henlin KC, Patricia Roberts-Brown and Jonathan Neita of Simons Muirhead & Burton LLP represented the staff association.

NCBFG keeps dividend track

The win for staff comes at a time when there is a mass shift taking place at Jamaica’s largest commercial bank and its associated companies. Michael Lee-Chin, majority shareholder of NCB Financial Group Limited (NCBFG), became more involved with the financial conglomerate last year as he expressed a desire for change.

One such change has been the required return to office as of February 1 in a move which has garnered dissatisfaction across the spectrum.

Several executives across NCBFG, including former NCBJ Chief Executive Officer Septimus “Bob” Blake, departed the organisation last year in a move which cost $7.45 billion in separation/termination benefits. Blake, who was NCBJ’s sole executive director on the board, had a $3-billion remuneration cost listed in the audited financials.

Although the bank will now have that near-$800 million payable to its 2002 staff, it still held $896.32 billion in total assets and $106.06 billion in total equity as of September 2023. This is despite the 39 per cent drop in net profit to $8.50 billion.

NCBFG is currently seeking $4-6 billion in the debt markets as it seeks to refinance its debt at rates of 11-11.5 per cent. That offer closes on February 27. NCBFG announced at its recent shareholder meeting that it will be providing guidance to investors on profits, dividends, cost to income ratio, customer service excellence and staff satisfaction.

NCBFG also declared a $0.50 dividend on March 18 to shareholders on record as of March 4. This payment totals $1.27 billion, with Lee-Chin’s AIC (Barbados) Limited to collect $630.87 million from this payment. Different debt securities are maturing this year for Lee-Chin’s connected businesses.